I would imagine that the name Kenneth Carter is not well known outside of a narrow range of economic specialists and accountants working in the tax or public finance area. Kenneth Carter was appointed in 1962 by a Conservative Prime Minister – John Diefenbaker – to examine and report on the federal tax system. The Royal Commission on Taxation (1962-67) is often remembered for the statement “a buck is a buck” which amounted to the proposal that all accretions to economic power of the same amount should basically be taxed the same way.
It came at a time when the Canadian federal tax system had evolved into a hodge-podge with the three main taxes thrown quickly together as a result of the financial needs of the First World War – the personal income tax, the corporate income tax and the federal sales tax (MST). The systematic study of the tax system with the use of terms like efficiency and equity in evaluating the tax system and the collection of a lot of information about the system was important in shaping the study and discussion framework of Canadian public finance– even if much of what was ultimately proposed was not implemented despite the 1971 Tax Reform Act. A major recommendation – capital gains taxation – was only partially implemented and with a lag.
It has been over 50 years since the appointment of the Carter Commission. It has been about 25 years since the White Papers and tax reform of the late 1980s, which led to income tax reform and the onset of the GST under the Conservative government of Brian Mulroney. We have not had a comprehensive and systematic review of the entire federal tax system in some time and yet at the same time there have been changes to tax rates and policies – such as the lowering of the GST and reductions in corporate tax rates – as well as proposals for new tax relief measures such as income spitting for families with children under age 18.
The current tax system is once again a “hodge-podge” in need of simplification and reform as noted by Jack Mintz in an article in the Financial Post earlier this year where he states:
“The existing Canadian system is a hodgepodge: taxpayers file as individuals but family relationships are used to determine taxes. We allow exemptions to be transferred between spouses. We determine eligibility of refundable tax credits based on family income. We also provide income splitting for pensions, CPP benefits and RRSP contributions. Despite various rules to limit income splitting, high-income taxpayers have certain opportunities to split income with spouses when non-employment income is involved. And the Conservatives are considering broadening income splitting to include couples with children, which is another piecemeal approach to family taxation.”
Over the last 50 years, two Conservative Prime Ministers have been associated with the instigation of significant episodes of tax reform in Canadian economic and fiscal history – John Diefenbaker and Brian Mulroney. As part of his legacy, Stephen Harper should make the same effort as these two predecessors and help undertake a systematic review of the federal tax system. Moreover, he should broaden the mandate to also include the expenditure and program side of the federal government. What should a 21st century federal government be doing with respect to the programs and expenditures it offers and how should taxes best be levied to fund these activities? What should the federal expenditure role be in the 21st century? What is an efficient and equitable federal tax system for 21st century? Its time for a new Royal Commission on Federal Taxation and Expenditure and a 21st century Kenneth Carter.